Green Leases?
The expression ‘Green Leases’ is being mentioned in property circles with increasing frequency. A ‘Green Lease’ is a lease with provisions requiring or encouraging the landlord and tenant to reduce the environmental impact of the property they own or rent.
This is a relatively new concept both in the United Kingdom and around the world and has financial consequences which need to be carefully considered as they can have a potentially adverse impact on the parties.
So how do you make a lease ‘green’?
You can incorporate mandatory or discretionary provisions into the lease itself or in a schedule attached to the lease. Alternatively, you can list objectives in a separate document such as a ‘Memorandum of Understanding’.
The type of provisions included will depend on the age, size and location of the building, existing green credentials and the goals and budgets of the parties. From a commercial perspective, the two key areas of contention are responsibility for costs and time commitment to making the building ‘green’.
It is important to consider not just how buildings are constructed, but also how they are used day to day. Factors to consider include; water usage, waste reduction, recycling and energy efficiency.
Advantages of green leases include reducing the cost of bills and ensuring compliance with existing and upcoming EU laws, making the property more attractive to potential tenants and improving your company’s green credentials. On the flip side, green leases can involve expensive set-up costs (especially as we are still in the midst of unfavourable market conditions), disputes over whether the landlord or tenant is responsible for making the property green and time ‘retrofitting’ older buildings.
This concept is still in its infancy. The main challenges for the promotion of green leases are perceived time-scales and cost, lack of understanding over what a green lease entails and disagreement over who should bear the costs and responsibility. We will have to wait and see how prevalent green leases become in the real estate market, but the importance of environmental issues and corporate responsibility means they are definitely something to consider.
